A recent California decision found that a Transfer Disclosure Statement that is required on all sales of properties with four or fewer residential units also applies to a mixed use property that has four or fewer residential units. Richman v. Hartley provides further guidance when a Transfer Disclosure Statement is required for the sale of real estate.

In 2007, Hartley entered into a written agreement with Richman to purchase Richman’s property, consisting of a residential duplex and a commercial building. A paragraph of the written agreement required that the seller make all disclosures required by law and that the property would be sold “as-is.” At the same time, Hartley leased the property from Richman for two years.

In 2009, escrow was scheduled to close, but Hartley failed to close escrow citing that Richman did not provide Hartley with a Transfer Disclosure Statement required by Civil Code Section 1102. Richman sued Hartley for breach of contract. Hartley moved for summary judgment because Richman failed to provide the Transfer Disclosure Statement. The trial court granted Hartley’s Motion for Summary Judgment, and Richman appealed.

The Court interpreted Section 1102 to require a Transfer Disclosure Statement for the sale of a mixed use property that contains four or fewer residential units because Section 1102(a) requires the Transfer Disclosure Statement for all sales of properties within four or fewer residential units, regardless of whether there are other non-residential structures on the property.

The Court found that other laws addressing residential real estate disclosures also contain the phrase “residential real property;” however Section 1102 requiring a Transfer Disclosure Statement does not make that distinction.

This case is important for real estate investors, brokers, real estate salespersons and others involved in a real estate transaction particularly those for mixed use properties when it is confusing whether or not the property is “residential” or “commercial.”